5. Creating Freedom of Choice in Health Insurance

Published on June 1, 1990

Problem:
Mandated health insurance benefits imposed by state governments as well as other
state regulations are increasing the price of health insurance and pricing as
many as one out of every four uninsured people out of the market for health
insurance.

Solution:
Individuals should have the freedom to buy no-frills health insurance, tailored
to individual and family needs.

Discussion:
The number of Americans without health insurance has increased by 25 percent
since 1980 and now totals as many as 37 million people.
[23] A major reason why
so many people lack health insurance is that state regulations are increasing
the costs of insurance and pricing millions of people out of the market for
insurance.
[24] In recent years there has been an explosion of state laws
requiring health insurance policies to cover specific diseases and specific
health care services. These laws are called mandated health insurance benefit
laws.

In 1970, there were only
30 mandated health insurance benefits in the United States.

Today there are at least
800 mandated benefits, including legislation passed by every state in the
union.

Mandated health insurance
benefits cover ailments ranging from AIDS to alcoholism and drug abuse, and
services ranging from acupuncture to in vitro fertilization. Mandated
benefits cover everything from the life-prolonging procedures to purely cosmetic
devices: heart transplants in Georgia, liver transplants in Illinois, hairpieces
in Minnesota, marriage counseling in California and pastoral counseling in
Vermont. These laws reflect the fact that special-interest groups now represent
virtually every disease and disability and virtually every health care service.
Currently:

Thirty-seven states
require health insurance coverage for the services of chiropractors, three
states mandate coverage for acupuncture and two states require coverage for
naturopaths (who specialize in prescribing herbs).

At least 13 states limit
the ability of insurers to avoid covering people who have AIDS or a high risk
of getting AIDS.

Laws in 40 states
mandate coverage for alcoholism, 20 states mandate coverage for drug
addiction, and 30 states require coverage for mental illness.

Five states even mandate
coverage for in vitro fertilization.

Collectively, these
mandates have added considerably to the cost of health insurance, and they
prevent people from buying no-frills insurance at a reasonable price. As Table 4
shows, mandated coverage for substance abuse is very costly – increasing premium
prices by 6 to 8 percent. Mandated coverage for outpatient mental health care is
even more expensive – increasing premium prices by 10 to 13 percent. Psychiatric
hospital care apparently has little effect on premium prices for the primary
insured person. But if dependents are covered, premium prices can rise by as
much as 21 percent.

These price increases are
having an effect. As many as one out of every tour uninsured people lacks health
insurance because state regulations have increased the price of insurance.
[25]
This means that as many as 9.3 million people lack health insurance because of
current government policies. Employees of the federal government, Medicare
enrollees and employees of self-insured companies are exempt from these costly
regulations under federal law. Often, state governments exempt Medicaid patients
and state employees. The full burden, therefore, falls on employees of small
business, the self-employed and the unemployed – the groups which are
increasingly uninsured.

Freedom of choice in health
insurance means being able to buy a health insurance policy tailored to
individual and family needs. This freedom is rapidly vanishing from the health
insurance marketplace. Accordingly, insurers should be permitted under federal
law to sell federally qualified health insurance both to individuals and to
groups. This insurance would be free from state mandated benefits, state premium
taxes and mandatory contributions to state risk pools.